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Know the boundaries of 'related party' rules

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in Small Business Tax

Q  In an article on buying your parents’ home and renting it back, you discuss the phase-out of a loss. But aren’t losses prohibited under the related party rules? J.H.F., Covington, La.

A  No. The “related party” rules apply to losses from the sale or exchange of property. For instance, it may restrict a deductible loss when a parent sells securities to a child. However, in this case, the loss is being claimed for the rental activity.

Tip: The phase-out of loss deductions for rental activities occurs between $100,000 and $150,000 of AGI.

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